8. Update on the Rates Collection Agreement with
Greater Wellington Regional Council (18/617)

Report No. FPC2018/2/132 by the Chief Financial Officer 60

Chair’s
Recommendation:

“That the recommendation contained in the report be
endorsed.”

9. Education Delegation to Minoh, Japan and
Taizhou, China (18/561)

Report No. FPC2018/2/127 by the Divisional Manager City
Growth 64

Chair’s
Recommendation:

“That the recommendations contained in the report be
endorsed.”

10. Finance Update (18/622)

Report No. FPC2018/2/129 by the Budgeting and Reporting
Manager 72

Chair’s
Recommendation:

“That the recommendation contained in the report be
endorsed.”

11. Information Item

Finance and Performance Work Programme 2018 (18/331)

Report
No. FPC2018/2/62 by the Committee Advisor 118

Chair’s Recommendation:

“That the programme be noted and received.”

12. QUESTIONS

With reference to section 32 of
Standing Orders, before putting a question a member shall endeavour to obtain
the information. Questions shall be concise and in writing and handed to the
Chair prior to the commencement of the meeting.

13. EXCLUSION
OF THE PUBLIC

CHAIR'S
RECOMMENDATION:

“That the
public be excluded from the following parts of the proceedings of this meeting,
namely:

The general subject of each matter to be considered while
the public is excluded, the reason for passing this resolution in relation to
each matter, and the specific grounds under section 48(1) of the Local
Government Official Information and Meetings Act 1987 for the passing of this
resolution are as follows:

(A)

(B)

(C)

General subject of the matter to be considered.

Reason for passing this resolution in relation to each
matter.

Ground under section 48(1) for the passing of this
resolution.

Hutt City Community Facilities Trust – Appointment
Of Directors.

The withholding of the information is necessary to protect
the privacy of natural persons. (s7(2)(a)).

That the public conduct of the relevant part of the
proceedings of the meeting would be likely to result in the disclosure of
information for which good reason for withholding exist.

Strategic Property Portfolio - Six Monthly Update.

The withholding of the information is necessary to enable
the local authority to carry out, without prejudice or disadvantage,
commercial activities (s7(2)(h)).

That the public conduct of the relevant part of the
proceedings of the meeting would be likely to result in the disclosure of
information for which good reason for withholding exist.

This resolution
is made in reliance on section 48(1) of the Local Government Official
Information and Meetings Act 1987 and the particular interest or interests
protected by section 6 or 7 of that Act which would be prejudiced by the
holding of the whole or the relevant part of the proceedings of the meeting in
public are as specified in Column (B) above.”

Annie Doornebosch

COMMITTEE ADVISOR DEMOCRATIC SERVICES

9 02
May 2018

Finance
and Performance Committee

12 April 2018

File: (18/598)

Report
no: FPC2018/2/115

Business Case -
Technology One SaaS Proposal

Purpose
of Report

1. To
recommend the purchase and implementation of TechnologyOne Software as a
Service (SaaS) Solution.

Recommendations

That the Committee recommends
that the Community Plan Committee:

(i) supports the business case, attached as Appendix 1 to the report,
for the implementation of TechnologyOne Software as a Service;

(ii) notes that the requested amount for TechnologyOne Software as a
Service is in the draft budget as a provision; and

(iii) confirms
the draft budget of $1.5M to transition to TechnologyOne Software as a
Service, and annual operating budget of $0.524M.

Background

2. Council’s information systems have been incrementally improved
and added to over many years. They have now reached the stage where they
are becoming overly complex to maintain and a transition to a more modern
platform to support efficient and reliable service delivery into the future is
needed. This transition is a major undertaking and would represent a
significant investment for Council.

3. The Business Case attached as Appendix 1 to the report seeks
approval for an investment of $1.5M and additional operating expenditure of
$0.2M per year to implement TechnologyOne Enterprise Software as a Service
(SaaS). This is phase one of the long term redevelopment path for
Council’s information systems.

Options

4. Options
are outlined in the Business Case attached as Appendix 1 to the report.

Financial
Considerations

5. The
Business Case identifies an investment over five years which is $271,596 below
the draft budget allocations. However, it is recommended the full amount
remains in budget to allow a reasonable contingency for the project.

6. The
Business Case identifies that there are further potential phases to the
development of Council’s information systems once we have transitioned to
a SaaS model. While these are likely to be desirable improvements,
business cases for these further phases are yet to be developed. It is
worth noting that if these subsequent phases proceed in whole or in part, it
would require a further multi-million dollar investment that is not included in
current budgets.

Legal
Considerations

7. There
are no legal considerations.

Other Considerations

8. In
making this recommendation, officers have given careful consideration to the
purpose of local government in section 10 of the Local Government Act 2002.
Officers believe that this recommendation falls within the purpose of the local
government in that it will set the path for the future technology roadmap that
will in the long term deliver greater efficiencies for officers and provide
enhanced online facilities to the community. It does this in a way that is
cost-effective because we are implementing an enterprise solution that will
provide a single point of entry and simple access to information in the future.

9. A
governance group will be put in place for the project. Members of the group
will include a representative from the Strategic Leadership Team and an
external representative.

This Business Case seeks
approval for an initial investment of $1.5M and additional operating
expenditure of $0.204M per year to implement TechnologyOne Enterprise Software
as a Service (SaaS).

1.2 Introduction

Council’s Information Technology Strategic Roadmap
consists of four phases. This business case supports the delivery of
Phase One, which is the founding basis for the delivery of subsequent phases
and the Roadmap overall. Individual business cases will be developed in support
of each Roadmap phase or major component.

This business case is for the provision of a resilient,
modern and cost-effective technology solution for the systems that support the
majority of Council’s business processes. The solution will
minimise risk to Council and provide the foundation to keep pace with
technology advancements, which in turn will contribute to future efficiency
gains and the ongoing ability to meet customer service expectations.

Three options were considered and evaluated.
TechnologyOne Enterprise SaaS (option 3) is the recommended option as it
provides predictable
costs, lower risks, simplified technology solution, and allows resources to
re-focus effort from tactical operational tasks to strategic initiatives.
This option also supports Council’s Information Services Strategic
principle of Enterprise First, where the return on investment made to
date is maximised through utilisation, expansion and enhancement of the
enterprise system.

There are a number of TechnologyOne customers in both New
Zealand and Australia who have completed the transition to TechnologyOne
Enterprise SaaS, and are operating successfully. Within New Zealand Local
Government both Wellington City Council and Whangarei District Council
transitioned in 2016.

TechnologyOne Enterprise SaaS simplifies the running of
the TechnologyOne enterprise systems and provides a longer term reliable and
secure platform. Elimination of ongoing technical upgrade cycles, the
maintenance of complex database infrastructure, the security risks around web
servers, together with a highly available solution ensures Council is able to
meet business continuity and audit compliance requirements.

1.3 Context

Local Government in New Zealand is facing major
challenges, in particular the growing fiscal pressure to continue to deliver
existing and new services to the community, better manage their corporate
systems and resources, and strive for continuous improvement and productivity
whilst finding solutions that ensure property rates remain affordable.

Technology
is an enabler that improves transparency, efficiency and empowers the
community.

The
community interacts with council in a number of ways. Through technology
advancement the way of interacting and service expectations are changing in the
areas of self-service 24/7 (get information when needed) and request, submit,
complain or discuss something today and get it resolved instantly.

For
Council staff, keeping pace with technology and providing flexible working
options are important. Self-service and mobile technology solutions are
now standard ways of operating for many organisations.

TechnologyOne
Enterprise SaaS, and this business case, allows for:

· Focus to
be placed on supporting the key strategic areas of Council

· Resilience
in the platform and infrastructure to provide flexibility and scale

· Internal
effort to be focused directly on supporting the key strategic areas, instead of
maintaining and supporting internal business hardware and software

TechnologyOne
Enterprise SaaS aligns with Council’s vision and key strategies for Making
our City a Great Place to Live, Work and Play, along with the
requirements and needs of the Best Local Government Services (BLGS)
programme of work.

1.4 Software as a Service (SaaS) -
Definition

Software
as a Service (SaaS) can be defined as business or consumer software
applications, and all of their associated data, provided on demand over the
internet. The software applications are also referred to as ‘cloud
apps’ for short, or just ‘apps’.

The
services these apps provide are available on any device, as long as you have
access to the internet. Normally the services are accessed through a
browser, or through an app you download to your mobile device, but the data is
stored in a ‘cloud’.

Apps
such as Facebook, Gmail and YouTube are common examples of software
applications using cloud computing (or software as a service). All the
files or data associated with these apps (such as photos, emails, videos etc)
and the software are stored in the data centres (cloud) of Facebook or Google.

2. Overview

Hutt
City Council’s integrated vision of Making our City a Great Place
to Live, Work and Play is to build on foundations to create a city
with an attractive proposition for residents, businesses and visitors.

All
of Council’s work ties back to the integrated vision, and the four key
strategies, of:

· Environmental
Sustainability

· Infrastructure

· Leisure
and Wellbeing

· Urban
Growth

Technology plays a key part in underpinning the strategic
intent within organisations. It is important Council keeps pace with
technology developments to continue to improve services through efficiency,
resilience and meeting customer expectations.

Council's
Information Technology Strategic Roadmap (figure 1) places focus on
delivering business outcomes against the four key Council strategies. A
key outcome for Council is to ensure its administrative processes are
underpinned by modern, reliable, leading-edge and evolving technology.

The first phase of the Information Technology (IT)
Strategic Roadmap, and this business case, is for TechnologyOne Enterprise
Software as a Service. The transition to Software as a Service
is a step change for Council that will provide a stable, resilient and
future-proofed IT platform.

This business case is for Phase 1 only. Phases 2 to 4
have not been fully assessed so we are not able to provide an accurate estimate
however the investment is expected to be in the range of $6M –
$10M.

Figure 1 – Hutt
City Council Information Technology Strategic Roadmap

2.1 TechnologyOne Enterprise Software
as a Service (SaaS)

TechnologyOne is Council’s core enterprise system
for Property and Rating, and Finance. The system supports the majority of
Council’s business processes including building consents, health
licenses, parking infringements and animal licensing.

Council currently operates the TechnologyOne system
‘on-premise’, meaning the associated hardware is owned, supported and
operated by Council.

TechnologyOne SaaS is built, supported and run by
TechnologyOne, and hosted by Amazon Web Services (AWS). Amazon Web
Services offers a broad set of global compute, storage, database, analytics,
application and deployment services that help organisations move faster, lower
costs and scale applications.

The transition to TechnologyOne Enterprise Software as a
Service is defined as moving Council’s TechnologyOne software
applications:

· From being
hosted On-Premise, to being hosted in the TechnologyOne Cloud

· From a
specific number of user software licences, to enterprise-wide software
licencing

· From
ad-hoc application support, to a formal and managed support arrangement

· From the
Ci software application platform, to the next evolution CiAnywhere (Phases 2, 3
and 4)

TechnologyOne Enterprise SaaS includes a roadmap of
ongoing enhancements and performance benefits hosted on AWS. TechnologyOne has
built their SaaS solution, combining software and hardware, into a
purpose-architected and designed environment which they support and run.

In moving to SaaS, Council would not be responsible for
the infrastructure required to run TechnologyOne software or software
installations. Using the same principles as Google and Facebook, TechnologyOne
Enterprise SaaS will provide Council with a continually evolving and improving
software solution that benefits from economies of scale.

2.2 CiAnywhere

Moving the TechnologyOne Ci
suite to the cloud provides the pathway to move to the CiAnywhere product over
the next 2 – 3 years. Ci Anywhere is TechnologyOne’s latest
software solution.

Transitioning from the
TechnologyOne Ci platform to the CiAnywhere platform enables the use of smart
mobile devices, introduces flexible working options and unlocks enhanced
functionality such as Customer Portals. CiAnywhere is a part of
TechnologyOne Enterprise SaaS, where the software is delivered through a
browser (HTML5).

CiAnywhere supports users
moving from one device to another to complete tasks, ensuring the data being
accessed is instantly available on any device as there is no need to
synchronise the information. CiAnywhere understands the device it is operating
on, with the software automatically adapting and rendering to fit the screen
size of the mobile, PC or laptop.

The implementation of
CiAnywhere applications will provide Council the opportunity to review its
business processes to ensure they are efficient.

3. Alternatives

The alternative options considered
and evaluated for this business case are 1. Do Nothing and 2.
On-Premise Development

OPTION
1

DO
NOTHING

Continue
to run and manage infrastructure and applications on-premise with current
license and support agreements

Benefits

· No
investment required (transition or SaaS service)

· No impact
on changes to the business

· No new
costs associated with technology developments

Dis-benefits, Risks and Issues

· Unable to
achieve Council vision or BLGS

· No
savings or efficiency gains

· Barrier for
technology to support business process improvement initiatives

· Immediate
IT infrastructure resilience risk, increasing over time

· CiAnywhere
upgrade more complex and expensive

· TechnologyOne
will eventually cease support of current platform

· Reduced
ability to benefit from shared innovations between other TechnologyOne
customers

· Unable to
scale in terms of users, customers, data and transactional volumes

· Updates
will be received later than SaaS customers

· Council
will lose reputation for good online services , and customer service ability
would reduce

· Risk
associated with current complex hardware and infrastructure

Cost

$1.7M over 5 years(refer
Section 7. Financials – Option 1).

Current operational
costs are $1.7M over 5 years, with no additional cost required for Option 1.

OPTION
2

DEVELOP
ON-PREMISE SOLUTION

In-house
development and ongoing management of full infrastructure and disaster
recovery, with management of on-premise application enhancements

Benefits

· Fully customised
infrastructure and disaster recovery solution

Dis-benefits, Risks and Issues

· Cost of
in-house transition and management resource

· No
reduction in current operational costs

· Management
of bespoke solution

· Staff
training and requirement to maintain IT resource skill levels

· Full
management end to end of all infrastructure and resilience components

· CiAnywhere
upgrade more complex and expensive

· TechnologyOne
will cease support of current platform

· Reduced
ability to benefit from shared innovations between other TechnologyOne
customers

· Updates
will be received later than SaaS customers

· Risk
associated with current complex hardware and infrastructure

Cost

$3.752M over 5 years(refer
Section 7. Financials – Option 2).

Additional cost
inclusion:

· like for
like disaster recovery solution to the resilience levels provided by
TechnologyOne. Disaster recovery replication to a Cloud provider (e.g.
Microsoft)

The transition to TechnologyOne Enterprise SaaS provides
to Council more predictable costs, lower risks, and simplified IT.
Additionally, it will allow staff time to be liberated from performing tactical
operational tasks to being able to be focus on strategic initiatives.

Council is currently managing cost and risk areas that
TechnologyOne Enterprise SAAS will remove. The challenge of not being
able to identify all direct costs (mainly due to non-dedicated resource or time
tracking) also suggests a heightened organisational risk.

The following benefits of TechnologyOne Enterprise SaaS
have been categorised into 4 main areas of Resilience, Efficiency, Cost Savings
and Strategic Opportunities.

4.1 Resilience

Resilience is the ability to provide and maintain an acceptable level of service
in the face of faults and challenges to normal operation. Threats and
challenges for services can range from simple technical system faults to large
scale natural disasters to targeted attacks. The benefits are:

Business Continuity and Disaster Recovery - little or no system outage in the event of an emergency, and
staff will be able to access systems easily, from anywhere with an internet
connection. This means, for example, that Council will be able to provide up to
date building and safety data, and continue supporting the city in the event of
an emergency. The current situation is that Council does not have
guaranteed support for the applications and associated data in terms of
infrastructure replication (hardware, software, network, storage) at
another data centre in an appropriate location.

Availability – the TechnologyOne
Cloud is built on a policy of High Availability – an active-active-active
architecture distributed across two datacentres which ensures an SLA of 99.5%
availability. A robust backup regime will ensure systems and data are
recoverable if required.

Security – the TechnologyOne
Cloud is ISO27001, ISAE3402, and IRAP certified and provides enhanced levels of
data security. There is a standard and secure way of accessing
information reducing the business risk for data and ensures certified security
and change management processes are maintained.

Compliance and Audits - TechnologyOne
provides the ISAE3402 SOC 1 and SOC 2 audit reports and the ISO27001
certification on a yearly basis to support the audit and compliance
requirements for accessibility of applications from anywhere on any device at
any time.

Scalability and Performance – the TechnologyOne
SaaS infrastructure automatically scales to meet demand at peak times.
This is provided using an economy of scale flexible architecture. For
Council to replicate this for peak demand times, such as rates strikes,
hardware and software resources would need to be kept spare.

4.2 Efficiency

TechnologyOne Enterprise SaaS will simplify the running
of the TechnologyOne enterprise systems for Council. This will liberate
staff time to focus on initiatives that contribute to efficiencies and
improving customers’ interactions with Council.

IT Resource - IT staff who focus on
supporting the running of applications will be able to apply their knowledge of
the applications and understanding of business processes to work with the
business to deliver improved efficiencies. The operating system,
SQL database, and anti-virus software are included in the service which
eliminates the need for in-house expertise to administer, support, upgrade,
patch, and secure the application and software internally. Additionally,
upskilling of staff will not be required for the introduction of new
architecture as technology evolves over time.

Mobility and Accessibility – an internet
connection, browser and unrestricted licencing ensures users can access the
system anywhere, anytime on any device, therefore facilitating increased productivity
and output. Additionally, the transition allows the use of the same
username and password that is used today. Upgrading to the latest
software release with the transition to TechnologyOne Enterprise SaaS provides
the ability to rollout key capability that will modernise and increase the
efficiency of key business processes.

Support Service Levels – moving from ad-hoc
application support, to a formal and managed support arrangement means business
requirements will be met in a faster, flexible way and improve IT service
levels. The current situation of TechnologyOne supporting the
applications on-premise, and the difficulty in obtaining consulting resource,
impacts the ability to provide a high-quality and consistent service.

4.3 Cost
Savings

Infrastructure – the
cost associated with maintaining on-premise infrastructure (hardware, software,
network, storage) is no longer required. This cost includes support
contracts, site costs (facilities as well as utilities), adhoc consulting fees
and internal support staff costs.

Licensing - users will only require an internet
connection and a browser to access the TechnologyOne applications. All
licensing for the database, Operating System (Windows Server), monitoring,
anti-virus etc. is included in TechnologyOne Enterprise SaaS.
Additionally, moving from a specific number of user software
licences to enterprise-wide software licencing removes restrictions, barriers
and administration effort for staff to have access to applications.

Upgrades and Continuous Improvement – future
upgrades and continuous improvements are included in TechnologyOne Enterprise
SaaS. This removes the need to plan and budget for improving hardware,
infrastructure or application architecture.

4.4 Strategic Opportunities

Best Local Government Services (BLGS) – TechnologyOne
Enterprise SaaS aligns with the requirements and needs of the Best Local
Government Services (BLGS) programme of work which delivers
improvements both internally and to ratepayers / customers.

Enterprise First – the IT Strategy
principle of Enterprise First ensures the return on the
investment made to date for the TechnologyOne enterprise system is maximised
through utilisation, expansion and enhancement. TechnologyOne Enterprise
SaaS contributes to the future-proofing the strategic direction of Information
Technology.

Efficiency and Modernisation – through the upgrade
to the latest release and a transition to TechnologyOne Enterprise SaaS, Council can
rollout key capability within CiAnywhere that will modernise and increase the
efficiency of key business processes. Additionally the efficient ability
to scale
in terms of users, customers, data and transactional volumes will have little
to no impact on day to day business operations.

Investment Certainty – the
transition to TechnologyOne Enterprise SaaS will remove the need for future
significant investment in the TechnologyOne infrastructure and platform.
The latest infrastructure and software updates are automatically deployed to
the TechnologyOne Cloud ready for Council deployment into their production
environment. No additional investment will be required for licences if we
wish to add more users to existing applications.

The
TechnologyOne Enterprise SaaS operational risks are around the day to day
operation, management and support of the new platform, which is the
responsibility of TechnologyOne.

Although
there are a number of TechnologyOne customers successfully operating
TechnologyOne Enterprise SaaS there is still risk present for Council.
Strong vendor management is necessary to ensure the contracted support and
service levels are maintained, especially in the areas of availability and
performance.

Additionally,
it is important to keep up to date with the strategic direction of
TechnologyOne, along with technology improvements, in order to understand the
impact on Council’s current and future operations.

5.2 Transition Risks

Although
the TechnologyOne Cloud Transition team is responsible for the implementation,
the knowledge and input from experienced Council IT staff is critical for
success.

Within
Council, the new proposed Business Improvement Team combined with the
experience and knowledge of existing IT staff will minimise the transition risk
for Council. Additionally, the completion of the Cloud Readiness
assessment during 2017 has identified areas of risk which allows for
elimination or appropriate mitigation prior or during the transition.

Rigorous
testing and strong project management by Council will ensure transition risks
are kept at a manageable level.

6. Implementation
Approach / Timeline

The implementation approach
for minimum disruption to users, includes the following phases:

6.1 Stage One – Cloud Readiness

The Cloud Readiness
Assessment was completed in 2017 to further understand transition risks.
All interfaces need to be cloud-friendly to be re-enabled in the cloud.

This stage is to prepare
Council to transition to the Cloud. This preparation work removes or
redevelops any solutions that are not “cloud friendly” with the
goal to reduce the amount of work and risk associated with the actual Cloud
transition phase.

The Cloud Readiness
Assessment and Interface Inventory documents contain the result of the
assessment of the existing application architecture and infrastructure. The
assessment highlighted a number of areas that require interfaces to be
developed or a change in current process. These requirements will be included
and delivered as part of the project.

6.2 Stage Two – Cloud
Transition

This phase is to transition
Core Enterprise Suite - Finance (CES) and Property and Rating (P&R)
TechnologyOne software to the cloud, and complete any redevelopment or
implementation of any technology required to continue to operate after Cloud
transition, e.g. Document management (CM9) integration.

TechnologyOne has changed their approach under the SaaS
offering SaaS removes the option for custom development and direct interaction
with the databases. Interfacing with the software and data will now be
completed using industry standard functions reducing risk and complexity.

Transition to
Cloud

· Transition
CES and P&R to the Cloud including upgrade to latest software.

· Transition
to the TechnologyOne Cloud using the following Cloud
Transition Process.

Testing
Strategy

· Review
of existing test strategy, plans and scripts.

· Update
all artefacts to create an agile and efficient test regime that will support
the SaaS Software Feature Release process.

Implement
CiAnywhere Basic Applications

Where practical we will implement the following CES
CiAnywhere applications for quick wins with minimal or no reconfiguration:

o MyTasks
(Workflow) – quick and easy to use on
any device

o Actioning
Tasks via Email – removing the need for users to
even log into the application

TechnologyOne supports the
Content Management Interoperability Services (CMIS) open standard for document
exchange. The enables documents created in TechnologyOne to be automatically
transferred and stored in the Councils document management system (CM9).

The CMIS interface connector
is licenced separately. Custom development will be required to build the
interfaces.

6.3 Implementation Timing

Stage one was completed
during 2017.

Stage
Two is estimated to take 3 - 5 months, with the exact start date still to be
determined. Confirmation of the start date will be based on the
availability of skilled and knowledgeable Council IT resource and ensuring
there will be minimal risk of disruption to Council IT operations during the
transition period.

7. Financials

7.1 Cost

The requested initial
investment of $1.5M :

· TechnologyOne
Enterprise Software as a Service ($1.3M); plus

· Application
Managed Services – Ongoing Consulting Support ($45K)

· Integration
Connector / API ($135K)

· Project
Resource (20K)

Capital expenditure of $1.5M
in year 1 relates to the transition. Operating expenditure of $0.524M is the
continued annual cost.

CPI is not applicable for
the TechnologyOne contract. It is assumed that CPI is not applicable for
the Integration Connector / API.

7.2 Savings

Option 1 – Do Nothing

· $2,165M
savings against budget over 5 years. Realised due to:

o The budget allocated for the
implementation and ongoing maintenance of TechnologyOne SaaS solution would not
be used.

Option 2 – Develop
On-Premise Solution

· $0.115M
savings against budget over 5 years. Realised due to:

o The budget allocated for the
implementation and ongoing maintenance of TechnologyOne SaaS solution would not
be used.

o There is an additional
investment required in setting up and maintaining the infrastructure required
for Disaster Recovery that offsets the majority of the savings made through not
implementing TechnologyOne SaaS.

Option 3 – Implement
TechnologyOne SaaS Solution

· $0.271M
savings against budget over 5 years. Realised due to:

o Reduction in Microsoft
Server licence costs

o First year licence fees for
TechnologyOne SaaS which have been budgeted will be covered by the Capital
Investment.

1. To obtain authority for Council to continue to borrow funds for
on-lending to Council Controlled Trading Organisations (CCTO's) and
(non-trading) Council Controlled Organisations (CCO’s), at agreed
margins.

Recommendations

That the Committee recommends
that Council:

(i) approves extending the maturity of existing loan agreements to
allow Council to continue on-lending up to;

(a) $3.5M
to Seaview Marina Limited (SML);

(b) $13.0M
to Urban Plus Limited (UPL); and

(c) $3.0M
to The Hutt City Community Facilities Trust (CFT);

(ii) approves
a further short term funding facility of $5.0M to UPL for project financing
of property developed for resale by UPL included in the UPL Statement of
Intent (SOI);

(iii) agrees
that these approvals will cover the period up to 30 June 2021;

(iv) agrees
that the maximum maturity date for any loan is limited to three years from
the date the loan is arranged;

(v) agrees
that the margins on loans to CCTO’s (SML and UPL) be 1.0%, and 0.5% for
CCO’s (CFT);

(vi) requests
officers to draw up formal agreements between Council and the
CCTO’s/CCO’s outlining the terms and conditions associated with
these loans; and

(vii) agrees
that any amount borrowed by Council and on-lent to a CCTO/CCO be treated as
an investment for the purposes of calculating the Councils net debt figure
when considering the Financial Strategy Limits.

For the
reasons that SML, UPL and CFT require loan funding to deliver the outcomes
contained in their respective SOI’s, and that Council due to its strong
credit rating and access to debt funding via the Local Government Funding
Agency (LGFA), can provide the required loan funding at the lowest cost to
the Hutt City Council group.

Background

2. In
December 2014, Council approved identical recommendations to recommendations
(i), and (iv) to (vii), to cover the period up to 30 June 2018.

3. Formal
loan agreements between Council and the CCO’s were executed and remain in
place. The respective CCO loan balances have remained at the same amounts
since the last Council approval and are:

a. $2.7M for SML;

b. $9.0M for UPL (comprising one loan for $4M and
another for $5M); and

c. $3.0M
for CFT.

4. Approval
is sought to continue with the current loan funding arrangements between
Council and the CCO’s, and for a further short term funding facility for
UPL to provide project financing for property it plans to develop for resale.

5. The
draft SOI’s presented to Council in March by each of the CCO’s and
the draft 2018-2028 Long Term Plan (LTP) budgets approved by Council assume
that the current loan funding in paragraph 3, continue.

Discussion

SML

6. Approval
to on-lend up to $3.5M to fund SML’s planned in-water developments, was
granted in 2009 and further approved in 2014.

7. SML’s
in-water and property developments to date have been very successful as
evidenced by SML’s strong financial performance, balance sheet, and
growing cashflows from operations.

8. SML’s
capital plans include further in-water developments which will further
strengthen SML’s financial results and significantly improve the
CCTO’s value and future dividends to Council. Continued loan (or
equity) funding is required and appropriate to realise SML’s planned
value improvement.

UPL

9. Approval
to on-lend up to $13M currently exists, of which $9M has been drawn down by
UPL.

10. UPL
plans to grow its residential rental portfolio from its current holding of 149
units to 220 units by 2021. It intends to fund this growth through a
combination of the existing Council loan facility, proceeds from the sale of
rental units no-longer deemed suitable, and from profits on properties
developed for resale like the current and very successful Fairfield Waters
residential development.

11. Profits
from property developed for resale will in time fund the planned growth in the
UPL residential rental portfolio. To achieve the 220 units target by
2021, residential rental developments and property developed for resale will
need to happen concurrently over the next 3-4 years and to do this both the
undrawn amount of the current loan agreement ($4M), plus additional short term
‘project’ funding (up to $5M) for property developed for resale,
will be required from time to time. This is illustrated in the following graph
per UPL’s 2018 SOI.

12. UPL
has a very strong balance sheet with $36M in total assets, $22M of equity and
the current $9M loan balance with Council.

CFT

13. The
2014/15 Annual Plan approved the Walter Nash Stadium development with the
understanding that CFT would need to borrow up to $3M to complete the
development. Council previously approved Officers to borrowing this money
directly and on-lend it to CFT.

14. CFT
intended to repay the loan over 20 years from the annual operating grant it
receives from Council. Due to some external sponsorship funds being
progressively received after CFT facility(s) are completed and suppliers paid,
CFT now plan to repay the loan over the next 18 years.

Funding
via Council

15. Having
been given authority via their SOI’s to undertake both the capital
development and the associated borrowing to fund their development programmes,
the CCTO’s/CCO’s are under an obligation to obtain funding on the
most favourable terms possible.

16. The
most favourable terms for the CCTO’s/CCO’s is to borrow money from
Council. In order to facilitate this arrangement, Council needs to be
authorised to on-lend money to CCTO’s/CCO’s. This is allowed under
the Local Government Act subject to the following restriction for CCTO’s:

63 Restriction on lending to
council-controlled trading organisation

A local authority must not lend money,
or provide any other financial accommodation, to a council-controlled trading
organisation on terms and conditions that are more favourable to the
council-controlled trading organisation than those that would apply if the
local authority were (without charging any rate or rate revenue as security)
borrowing the money or obtaining the financial accommodation.

There is no such requirement for
CCO’s

17. The
recommended option allows the CCTO’s to benefit from better interest
rates due to the strong credit rating of Council and Councils access to debt
funding via the LGFA. It is recommended that Council charge a margin of
1.0% for this service whilst still retaining a financial benefit for the
CCTO. This margin ensures that the arrangement complies with section 63
of the Local Government Act.

18. Section
63 of the Local Government Act only applies to CCTO’s, therefore a margin
of 0.5% is proposed for CFT because this more closely represents the actual
cost to Council.

19. It
is recommended that Council and CCTO/CCO loan agreements are time
limited. A sensible time to review CCTO/CCO funding arrangements would be
during each LTP review period. Therefore it is recommended that the
current authorisation is extended to 30 June 2021.

20. If
authorisation is extended, Council will continue to organise funding on behalf
of the CCTO’s/CCO’s with a maximum maturity date of 3 years.
This may mean that some loans may extend beyond the 30 June 2021 review
date. If at the review date Council decides not to renew the ability for
Council to on-lend to the CCTO’s/CCO’s, these loans will need to be
transferred. Any re-arranged loans will be at higher interest rates
because the CCTO’s/CCO’s will no longer be able to benefit from
Council's lower average cost of borrowing.

21. It
is necessary to allow loans that extend beyond the review date, to ensure that
best interest rates are obtained and to minimise the risks associated with
refinancing a large amount of debt maturing at the same time.

22. In
order to remain within the debt limits as laid out in the Financial Strategy it
is recommended that this on-lending continues to be treated as an investment.

23. If
the recommendations are approved then formal agreements outlining the terms and
conditions associated with the current and future loans will be drawn up and
signed by Council's Chief Executive and the relevant CCTO/CCO Chief Executive
or General Manager.

24. In
addition to any long term loans arranged on behalf of the CCOs, both UPL and
SML run a current account with Council. This is because all UPL and SML
invoices are initially paid from Council's bank account and after each
month-end, Council seeks reimbursement from UPL’s and SML’s
respective bank accounts. Should the unlikely situation arise where there are
insufficient funds in the relevant bank account, Council will not remove more
funds than are available. In these situations, Council is effectively
providing an overdraft facility and will charge the CCO at the 30 day rate
available to Council plus a 1% margin. This situation does not occur in
the case of CFT because all invoices are paid directly from the CFT bank
account.

Options

25. An
alternative is to require the CCTO’s/CCO’s to obtain debt funding
from financial institutions directly. While financial institutions have advised
they are prepared to do this, this will be at higher interest rates to the
CCTO’s/CCO’s unless Council provides a guarantee.

26. However
section 62 of the Local Government Act 2002 (LGA), prohibits Council providing
such a guarantee - "A local authority must not give any guarantee,
indemnity, or security in respect of the performance of any obligation by a council-controlled
trading organisation."

27. The
recommended option allows the CCTO’s/CCO’s to benefit from better
interest rates due to the strong credit rating of Council and Councils access
to lower cost debt funding via the LGFA.

Consultation

28. Public
consultation is not required.

29. Officers
have consulted with Councils treasury advisors who recommend the continuation
of allowing Councils CCTO’s/CCO’s the option to make use of
Councils on-lending ability.

30. Officers
have had discussions with the boards of the CCTO’s/CCO’s who
support the continued ability to obtain loan funding from Council as this is
the most cost effective way for them to obtain the debt funding they require.

Legal
Considerations

31. Section
63 of the Local Government Act allows Council to on-lend to a CCTO as long as
it is not at more favourable terms than the local authority could obtain if it
were unable to use rate revenue as security. This limitation does not apply to
CCO’s.

32. Councils
Legal Counsel will review and approve the required loan agreements and any
supporting documentation.

Financial
Considerations

33. It
will cost the group less for Council to borrow the money and on-lend to the
CCO’s than it would for them to borrow direct from a financial
institution.

34. Council
will charge SML and UPL an additional 1.0% above the rate it obtains to ensure
compliance with section 63 of the Local Government Act. Even with this
additional margin these CCO’s are able to obtain the required finance
more cost effectively than they would if they approached the financial
institutions directly.

35. The
margin for CFT is proposed at 0.5% to reflect the cost of arranging the loan
and the cost of running the treasury function.

36. The
CCO’s draft 2018-2020 SOI’s have been prepared on the basis of the
current lending arrangements continuing, plus for UPL, the ability to draw on
further short term funds for its planned property developed for resale
projects.

Other
Considerations

37. In
making this recommendation, officers have given careful consideration to the
purpose of local government in section 10 of the Local Government Act 2002.
Officers believe that this recommendation falls within the purpose of the local
government in that it ensures services are delivered in the most cost effective
way through obtaining the lowest borrowing costs possible.

1. This
report informs the Committee of the Tax Governance Framework and Tax Risk
Management Strategy for Hutt City Council (Council) and its Council Controlled
Organisations (CCO’s), collectively referred to as the
“Group”.

Recommendations

That the Committee recommends that
Council approves the Tax Risk Governance Framework and associated Tax Risk
Management Strategy attached as Appendix 1 to the report.

Background

2. Council is
currently exempt from paying corporate income tax with the exception for income
derived from Council Controlled Organisations (CCO’s). CCO’s
(with the exception of The Hutt City Community Facilities Trust), are however
subject to corporate income tax. All entities in the Group are subject to
and required to correctly account for all indirect taxes including:

· Goods
and Services Tax (GST);

· Fringe
Benefit Tax (FBT);

· Pay
As You Earn Tax (PAYE); and

· A
range of other withholding taxes (WHT).

3. Over recent years,
the Inland Revenue Department (IRD) has targeted the local government sector
and a number of Councils have been subject to reviews and in some cases,
subsequent audits. An IRD audit is extremely detailed and resource
intensive that can often last up to 12 months or longer.

4. Inland Revenue has
signalled its expectation that all large organisations should have tax risk
management incorporated within their governance framework. This is
consistent with international best practice and tax authorities in foreign
jurisdictions, including Australia and the United Kingdom, advocating that this
approach is taken by large public and private sector organisations.

5. The New Zealand
taxation regime is a complex area and to keep abreast of developments, the
Group has worked with The Tax Team (Council’s tax advisors of many
years), who are now part of PricewaterhouseCoopers (PwC), to develop a tax
governance framework and tax risk management strategy that outlines the
Group’s approach and/or controls to tax risk management.

Tax Governance Framework

6. The Group’s
tax governance framework has been developed to best ensure that the Group
effectively manages its tax obligations and potential risks and achieves an
open and honest working relationship with the IRD.

7. The tax governance
framework is based on a “best practice” framework for the
delegation, review and reporting of tax responsibilities and includes the
following key aspects:

· Responsibility
for Tax Issues: The Chief Financial Officer has the overall responsibility
for the management of the tax issues for the Group. As appropriate, this may be
delegated to appropriately qualified person/s.

· Reporting
Tax Risk to the Finance and Performance Committee: Any significant tax
risks will be reported to the Chair of the Finance and Performance Committee
within two weeks of being identified.

· Tax
Awareness and Training: All relevant staff will be provided with adequate
trainings and resources to effectively identify and manage the Group’s
tax obligations and risks.

· Meeting
and Correspondence with the Inland Revenue Department: The Group will
endeavour to maintain strong working relationships with the Inland Revenue
Department, other government bodies and related third parties.

· Tax
advice and rulings: The Group will seek external expert tax advice if any
uncertainty in respect of a filing position where the amount of tax exceeds
$50,000.

· Tax
Returns and Payments: The Group will file all tax returns and pay any
resulting tax liabilities on, or before, the stipulated due dates. All returns
will be supported by detailed tax computations.

· Filing
and Record Keeping: The Group will retain all tax records in terms of the
Tax Administration Act 1994. To enable efficient retrieval, the Group will
maintain a detailed Index of relevant tax files.

· Regular
reviews: To ensure that the tax compliance procedures used by the Group are
up to date and accurate, an independent external review of indirect taxes
should be undertaken every three years.

· Penalties
and voluntary disclosures: The Group must make a voluntary disclosure when
a tax discrepancy is identified and thereby minimise any penalties and Use of
Money Interest.

· Tax
policies: The Group must maintain a tax policy that ensures consistent treatment
and application across the organisation.

Tax Risk Management Strategy

8. The tax governance
framework includes a tax risk management strategy which Officers recommend be
reviewed every three years and formally adopted by the Finance and Performance
Committee. This strategy identities the following:

· Key
areas of tax compliance risk relevant to the Group

· Details
the required actions to reduce and/or mitigate these risks; and

· Provides
clear timeframes to complete these actions.

9. Officers have
worked with PwC to develop the tax risk management strategy included within
appendix 1 attached to this report.

Consultation

10. Consultation
is not required.

Legal
Considerations

11. There are no
legal considerations arising from this report.

Financial
Considerations

12. There are no
financial consideration arising from this report

Other
Considerations

13. In making
this recommendation, officers have given careful consideration to the purpose
of local government in section 10 of the Local Government Act 2002. Officers
believe that this recommendation falls within the purpose of the local
government in that it ensures Council and Groups awareness of tax matters is
raised and that a tax governance framework is in place.

This document establishes the tax
governance framework for Hutt City Council's (Council) Finance and Performance
Committee.

1.1 Background

Council is a large, high profile,
organisation that is responsible for providing services to the New Zealand
public. As such, Council must maintain exemplary governance and tax compliance
standards.

Although Council is largely exempt from
paying corporate income tax, it is required to correctly account for Goods and
Services Tax, Fringe Benefit Tax, PAYE, and a range of other withholding taxes.
These taxes make up a significant portion of the New Zealand Government's
annual tax take. Accordingly, the tax obligations of Council cannot be taken
lightly.

Inland Revenue has signalled its
expectation that all large organisations should have tax risk management
incorporated within their governance framework. This is consistent with
international best practice; tax authorities in foreign jurisdictions,
including Australia and the United Kingdom, have been advocating this approach
is taken by large Public and Private sector organisations.

1.2 Risk Management

The Finance and Performance Committee
is, along with other responsibilities, tasked to:

§ Assist
Council to determine its appetite for risk.

§ Review
whether management has in place a current and comprehensive risk management
framework and associated procedures for effective identification and management
of Council's significant risks.

§ Consider
whether appropriate action is being taken by management to mitigate Council's
significant risks.

§ Ensure
management are keeping the Finance and Performance Committee fully appraised of
all independent sources of assurance, via the risk management framework.

Proactive tax risk management can
facilitate mitigation of:

§ Operational
risk – by way of reducing the potential for reputational damage befalling
Council as a result of non-compliance, and the possible negative impacts on
various stakeholders, such as employees and suppliers.

§ Financial
risk - through minimising the financial impact of non-compliance, and the costs
associated with over or under-paying tax by Council.

§ Compliance
risk- in terms of ensuring areas of non-compliance are identified, thereby
minimising any penalties or interest being imposed by Inland Revenue and
reducing the risk of Council being subject to an Inland Revenue Performance.

2. tax risk profile

Council
has an obligation to fulfil its tax compliance obligations as required by tax
legislation, including the Income Tax Act 2007, Goods and Services Tax Act 1985
and Tax Administration Act 1994.

Given
the high profile and public nature of Council, there is a need to adopt a
conservative approach towards tax compliance. Accordingly, Council will adopt a
"LOW" tax risk profile such that it has an open and honest working
relationship with Inland Revenue.

3. tax risk management strategies

The following strategies will be adopted
by Council to ensure that it maintains a low tax risk profile and effectively
manages its tax obligations and potential tax risks.

Council will develop a tax risk
management strategy to be formally adopted by the Finance and Performance
Committee. The strategy will be reviewed at least every three years. The
strategy will:

§ Identify
key areas of tax compliance risk that are faced by Council

§ Establish
the steps required to effectively manage or mitigate each risk area

§ Provide
clear and realistic time frames to carry out the steps.

3.1 Responsibility for tax issues

The Chief Financial Officer has overall
responsibility for the management of the tax issues of Council. As appropriate,
the Chief Financial Officer may delegate responsibility
for tax issues to another appropriately qualified person.

3.2 Reporting tax risks to Finance and Performance Committee

As the Finance and Performance Committee
meets on a six weekly basis, any significant tax risks will be reported in the
first instance to the Chief Financial Officer as soon as they are identified
and where appropriate, to the chair of the Finance and Performance Committee
within two weeks of being identified.

A 'significant tax risk' to Council may
be where an incorrect interpretation is made that results in:

§ A
situation where penalties and interest could be imposed against Council

§ A
situation where a tax liability outside of routine operating tax liabilities,
is required to be settled that is in excess of $20,000

§ A
situation where Council could be subject to prosecution

§ A
situation where an accusation of tax avoidance could be levied.

Council
will report on all tax risk management matters to the Finance and Performance
Committee at least once a year. As part of that report, a summary should be
prepared and presented to the Finance and Performance Committee setting out key
issues, and may include the following:

§ Key
financial information including any outstanding taxes due, and any interest or
penalties imposed during the year

§ Particulars
of any proposed legislative tax changes which could impact on Council

§ Details
of any significant outstanding taxes in dispute with Inland Revenue

§ Details
of advice sought and future matters to consider

§ A
table of tax tools and services used and whether each aligns with Council's 'LOW'
risk tax profile i.e. Strategy vs Achievement.

3.3 Tax awareness and training

Council will ensure that all relevant
staff are provided with adequate training and resources to effectively identify
and manage its tax obligations and risks. Where appropriate, this may involve
sending selective staff on external courses or engaging an external speaker to
conduct in-house training.

3.4 Meetings and correspondence with Inland Revenue

Council will endeavour to maintain
strong working relationships with Inland Revenue, other government bodies, and
related third parties. All dealings with external parties will be undertaken in
a professional and timely manner.

Apart from routine PAYE, FBT and GST
returns and payments, all other correspondence, meeting requests or queries
from Inland Revenue must be immediately referred to the Chief Financial
Officer. The Chief Financial Officer is the only person authorised to
correspond or meet with Inland Revenue to discuss the tax matters of Council -
although they may delegate this responsibility to others where appropriate.

3.5 Tax advice and rulings

Council will maintain detailed
information and computations supporting all tax return filing positions. If
there is any uncertainty in respect of a filing position where the amount of
tax exceeds $50,000 or if there is political or public risk the Chief Financial
Officer will seek written advice from external tax advisors.

In some instances, the degree of
uncertainty over a particular tax issue may warrant seeking a Binding Ruling
from Inland Revenue. No approach should be made for a Binding Ruling without
the prior approval of the Chief Financial Officer. However, the Chief Financial
Officer may obtain agreement from the Finance and Performance Committee if
considered appropriate.

3.6 Tax returns and payments

Council will file all returns and pay
any resulting tax liability on, or before, the stipulated due dates. When
preparing and filing tax returns, Council will be transparent, and fully
disclose all relevant information supporting a tax position in a tax return.
Council will only adopt tax positions that are highly likely to be correct
based on current law. Notwithstanding this, Council will endeavour to ensure
that the most tax efficient position is adopted.

Tax payment s must be authorised in
accordance with Council’s delegated authorities. Any tax payments in
excess of $20,000 must be authorised by the Chief Financial Officer. However,
the Chief Financial Officer may delegate this in accordance with
Council’s delegation authorities.

Tax payments must be supported by
detailed tax computations and explanations which are initialled by the preparer
and then countersigned by that person's superior prior to payment.

3.7 Filing and record keeping

In terms of the Tax Administration Act
1994, Council is required to retain tax records for several years. To assist in
archiving and the subsequent retrieval of relevant tax records, Council will
separately file each tax return and supporting computation and advisory
correspondence based on the year of assessment and tax type.

In addition, Council will maintain a
detailed index of the relevant tax files to enable their efficient retrieval
should they be requested by Inland Revenue in later years. Specifically, the
index should contain details relating to the file reference, relevant tax
period, tax type, subject of the document on file and location of the file, and
evidence of review by the Chief Financial Officer. This index should be
maintained irrespective of whether the information is in electronic or hard
copy format.

3.8 Regular reviews

The tax risks of Council potentially
increase over time through a combination of personnel and legislative changes.
To ensure the tax compliance procedures of Council are kept up to date and
accurate, an independent external review of GST, PAYE/Withholding Taxes and FBT
and other areas of tax risk should be undertaken every three years. This review
will tend to be undertaken in a 'rolling' format, with a different tax type
being reviewed each year.

3.9 Penalties and voluntary disclosures

Wherever possible Council should
endeavour to minimise any penalties and Use of Money Interest. Accordingly, any
tax discrepancies identified should be addressed and disclosed to Inland
Revenue as soon as possible. Unless the discrepancy has been identified
pursuant to a (current) tax investigation, Council (in consultation with the
Finance and Performance Committee) should always consider making a Voluntary
Disclosure as a means of minimising any potential penalties.

3.10 Tax policies

To assist staff with the day to day tax
treatment of issues specific to Council and to ensure a consistent tax
treatment of items across the organisation, Council subscribes to PwC's Online
Tax Policies. PwC maintains PAYE, GST, FBT, and KiwiSaver tax policies, and are
regularly updated for legislative changes.

These tax policies will provide an
outline of common tax issues arising and how they should be treated in the
various tax returns of Council.

1. To provide the
Committee with relevant and necessary information to consider whether
Council’s current cash advances facility (credit facility) should be held
at $15M, or alternatively increased to $35M, for a term of three years ending
31 July 2021.

Recommendations

That the Committee

(i) receives the report;

(ii) notes that Council’s current $15M credit facility expires on
31 July 2018;

(iii) notes
that a larger credit facility will enable officers to run a larger commercial
paper programme without beaching the liquidity ratio limit, the potential
benefit of which could be a lowering of Council’s average cost of
borrowings;

(iv) consistent with Councils Treasury Risk Management Policy,
authorises the Chief Financial Officer to negotiate refinancing terms for a
credit facility with a line fee not exceeding 30 basis points (0.30%), for a
three year term; and

(v) subject to part (iii) above:

(a) authorises a credit facility of $15M with a term of three years to
be in place by no later than 31 July 2018; or

(b) authorises a credit facility of $35M with a term of three years to
be in place by no later than 31 July 2018 (Officers recommendation).

Background

2. Council
currently has a credit facility of $15M, which expires on 31 July 2018.
The main purpose of the credit facility is to provide Council with guaranteed
and instant short-term debt funding only in the event of a large scale natural disaster(s)
and/or major emergency event. To date, no monies have been borrowed from
the credit facility.

3. Prior
to September 2012, Council had a credit facility of $25M. Since then, the
credit facility has been steadily reduced. Between September 2012 and June
2015, Council had a credit facility of $20M which was then further reduced to
$15M.

4. Historically,
a larger credit facility was essential to safeguard Council’s access to
debt funding, this was particularly important following the 2008 global financial
crisis and, a larger credit facility also enabled Council to diversify its
lending book, to best minimise its average cost of borrowings.

5. The
establishment of the Local Government Funding Agency (LGFA) in December 2011,
to guarantee access to lower cost debt funding for local authorities, has been
hugely successful and over time, has negated the need for Council to have a
credit facility in excess of $15M.

6. Officers
now believe that significant changes to our environment: Council’s higher
levels of borrowing to deliver the revitalisation and rejuvenation programme
for the city and the increased frequency of natural disaster events, now
warrants consideration of increasing Council’s credit facility.

7. Council
currently has a Standard and Poor’s (S&P) credit rating of AA/Stable.
Credit risk management is a key requirement to maintaining a strong credit
rating. It is prudent financial management to demonstrate to S&P that
Council’s credit facilities and any upcoming term debt maturities, are actively
managed and re-negotiated prior to maturity and within timeframes that allows
Council to realise competitive pricing.

8. Council
must negotiate a new facility by no later than 31 July 2018 to ensure
that Council has guaranteed access to instant and sizeable debt funding, which
can be drawn on if required. In reality, any debt drawn down from the
facility would subsequently be refinanced by lower cost term debt probably from
the LGFA.

9. Council’s
Treasury Risk Management Policy requires the Committee to authorise any new
credit facilities or the renewal of existing credit facilities.

Options

10. The cost of
a credit facility includes an annual “line fee” which is the cost
to Council of having instant access to debt funding, and a “margin”
which is an additional cost added to the bank’s 90 day bank bill rate
(BKBM) , charged only against amounts borrowed from the credit facility.

11. To minimise
Council’s overall cost of borrowings, Council needs to access debt at
least cost. Officers recommend that the new credit facility be agreed for a
term not less than three years for the following reasons:

· Pricing will be held for three years, thereby providing Council with
medium term price certainty; and

· Council
is guaranteed instant access to debt funding for three years.

12. There are
two options to consider further: negotiating a new credit facility with a three
year term for $35M or for $15M. These are considered separately below.

Option 1 -
$35M credit facility with a three year term ending 31 July 2021

13. A $35M credit facility would allow officers to run a
larger commercial paper programme to fund Council’s short-term working
capital funding requirements at least cost; and

15. Commercial paper is unsecured and short term debt (1 month
to 1 year), typically used to fund Council’s working capital funding
requirements, in between the bi-monthly rates installments.

16. 100 basis points (bps) is equivalent to a borrowing rate
of 1%.

17. At the time of writing this report, commercial paper
offered by the LGFA was 9bps over BKBM for lending up to 181 days and 14bps
over BKBM for lending terms ranging from 182 days up to 364 days.

18. Liquidity risk is the risk that Council will encounter
difficulty in obtaining sufficient debt funding to meet commitments as they
fall due. Council’s Treasury Risk Management Policy requires Council to
maintain a minimum liquidity ratio of 110%.

19. When calculating liquidity, commercial paper is treated as
a drawdown of debt against the credit facility. Hence, the size of the credit
facility becomes a key component of the liquidity ratio determination and
compliance.

20. Simply, a larger credit facility will enable officers to
run a larger commercial paper programme without beaching the liquidity ratio
limit, the potential benefit of which could be a lowering of Council’s
average cost of borrowings.

Increased
resilience to potential policy change by central government

21. Council currently insures up to 40% of its Maximum
Probable Loss (MPL) for material damage to its infrastructure (below ground)
assets caused from natural disaster(s). Currently, central government, subject
to an insurance levy, will cover the remaining material damage costs to
infrastructure assets from natural disaster(s) up to 60% of Council’s
MPL.

22. Since late 2016, Treasury has initiated a review of
central governments exposure to these events and local government was advised
that potentially, central government may transition to a model whereby it only
provides financial support for uninsured losses in excess of Council’s
MPL. At the time of writing this report, central government’s position on
this remains unclear.

23. With increasingly more natural disaster events, both
domestic and off-shore insurance markets are tightening, meaning that the cost
of insurance is increasing and total insurance capacity is decreasing as
investors are starting to seek higher returns on their investments and recoup recent
losses.

24. Increasing the credit facility to $35M provides Council
with guaranteed and instant access to debt funding in order to respond
immediately to any potential uninsured loss event(s), and for losses that are
covered, the period between event, insurance claim preparation, negotiation and
settlement.

25. Council must seek to realise the most competitive pricing
for a $35M credit facility for a term of three years ending 30 June 2021.
Officers requested one, two and three year pricing from a panel of banking
institutions. The table below shows the pricing obtained.

26. Council uses
PricewaterhouseCoopers (PwC) for independent and expert treasury management
advice. PwC advised that for comparably credit rated Councils with similar debt
size and tenors, all–up credit facility pricing in the last month have
been circa 80bps (1 and 2 years) and 90 to 120 bps (3 years).

27. PwC have advised Council to seek
better pricing, particularly from its current banker, to realise an annual line
fee of no more than 25bps or $87,500 per annum. Potentially this may be
possible but should not be taken as a given.

28. Should this be the
Committee’s preferred option, the draft 2018-28 Long Term Plan budget,
whilst cost neutral, will need to be adjusted to reflect the additional line
fee and lower interest expense prior to final adoption by Council on 28 June
2018. Please see “Financial Considerations” for further
explanation.

Option 2 -
$15M credit facility with a three year term ending 31 July 2021

29. Alternatively,
a credit facility of only $15M could be negotiated for a term of three years.
However, this facility level would not facilitate Council Officers to run a
larger commercial paper programme.

30. The line fee
for the current facility is $34,500 per annum. Whilst pricing still needs to be
confirmed, a line fee of 25 bps would be $37,500 per annum. This level of
operating expense has been included in the draft 2018-28 Long Term Budgets.

Consultation

31. There is no
need for consultation.

Legal Considerations

32. The new
credit facility agreement will require legal review to best protect the
Council.

Financial Considerations

33. Council
currently incurs a credit facility line fee of $34,500 per annum. Increasing
the credit facility to $35M will increase the line fee to at least $87,500 per
annum (calculated on 25 bps), representing an annual line fee increase of at
least $53,000.

34. As already
noted, commercial paper currently incurs a margin of 14bps over BKM for up to 1
year. This compares favourably to the LGFA’s 1 year term loan margin of
19 bps.

35. In order to
break even against a line fee increase of $53,000 per annum, a total commercial
programme of say $11M would need to be run over a 12 month period.

36. Currently,
Council is running a $5M commercial paper programme and cannot increase this
further without breaching its minimum liquidity ratio limit of 110%.

37. Council’s
operating revenues and expenditure both exceed $100M per annum and Council can
easily run a commercial paper programme of $11M over 12 months to better fund
its working capital requirements.

38. Officers
believe that a credit facility of $35M can be cost neutral for Council as the
additional line fee costs can easily be off-set by lower interest costs by
using a larger commercial paper programme. Therefore, the added benefit for
Council is guaranteed and instant access to larger debt funding, in the event
of a natural disaster(s).

Other Considerations

39. In making
this recommendation, officers have given careful consideration to the purpose
of local government in section 10 of the Local Government Act 2002. Officers
believe that this recommendation falls within the purpose of the local
government in that it provides best value for money for the ratepayers.

1. The purpose of
this report is to provide the Committee with a summary of the fixed asset
revaluations as at 31 December 2017, including explanations for significant
valuation increases and/or decreases.

Recommendations

That the
report be noted and received.

Background

2. Hutt City Council and
it’s Council Controlled Organisations: The Hutt City Community
Facilities Trust, Seaview Marina Limited and Urban Plus Limited, collectively
referred to as the “Group”, are required to revalue their significant
asset categories on a regular basis, sufficient to ensure that the net book
value of those assets does not materially differ to the fair value of those
assets, as at reporting date.

3. The Group revalues its
assets every three years to 31 December, unless market conditions warrant an
additional revaluation during the interim years. Asset revaluations as at 31
December 2017 were completed by Aon New Zealand Limited, an independent and
registered valuer.

Discussion

4. The 31 December 2017
revaluation has realised an uplift of $77.55M to the net book value of the
Group’s assets. A breakdown by asset category, is provided below:

6. Infrastructure
assets are highly specialised assets for which there is no active market.
As a consequence, these assets are valued on the basis of their Optimised
Depreciated Replacement Cost (ODRC).

7. The ODRC is
calculated based on the current replacement cost of modern equivalent
replacement assets (generally based on an industry based standard unit price)
that are adjusted for any over-design, over-capacity and/or redundant assets,
less an allowance for depreciation, to reflect the same age as the
Council’s current assets.

8. The valuation
movement mainly reflects increased unit costs over the three year period. The
November 2016 Kaikoura earthquake has resulted in a steep increase in
construction costs in the Wellington CBD due to lack of suitably qualified
resources. Due to its close proximity to the Wellington CBD, Aon advised that
fair value of the Council’s assets would be based on Wellington central
rates adjusted to reflect the installation costs for the Hutt Valley terrain.
Further, rates are discounted to reflect large commissioning of works (example:
as would be required after a major event) as opposed to one-off smaller jobs
(example: routine renewals).

Note 2 - Land

9. Land for valuation
purposes includes land under buildings, parks and reserves but excludes land
under roads. The Council’s total land valuation has been derived from
values of comparably zoned land in surrounding areas, making due allowance for
the size, character of location and any other constraints.

10. Where it is identified that
the land is designated reserve, appropriate adjustments to the valuation were
made to reflect the nature of any constraints (example: restriction on the
ability to sell) and future development potential.

11. Council land asset value
movements were in line with expectations for the three year period.

12. Urban Plus Limited (UPL) -
due to material movement in market values, UPL land assets
were revalued as recently as 30 June 2017, which resulted in a revaluation
uplift of $2.6M recognized by UPL in 2017/18. The movement noted in the
previous table reflects the market movement in value from 30 June 2017 to 31
December 2017.

13. Seaview Marina Limited (SML)
- land assets were revalued for the first time since November
2003 when ownership passed to the company from HCC.

14. The Hutt City Community
Facilities Trust (CFT) - only own the buildings and selected site improvements,
not the land where they reside which is owned by HCC.

16. The value of
the non-specialised and residential buildings (i:e: buildings that have an
active buyer/seller’s market), and associated site improvements, has been
determined by assessing comparable sales evidence taking into account
location, marketability, condition and tenant quality/rental income (if
appropriate).

17. The value
of the specialised buildings (i.e: buildings that do not have an active
buyer/seller’s market), and associated site improvements, has been
determined by first establishing their estimated cost to replace with an
equivalent new asset less depreciation for their physical, functional and
economic obsolescence.

18. Overall,
the revaluation was in line with expectations except for the Council
Administration Building located at 30 Laings Road. The net book value of
the building as at 31 December 2017 was $20.57M against a total revaluation of
$9.02M as at the same date, resulting in an unrealised revaluation decrease of
$11.55M.

19. This is
because the Administration Building is predominantly a non-specialised
commercial building with an active market and was therefore predominantly
valued on an income approach, rather than a cost approach. The specialised
areas of the building include the Council Chambers, ground floor open spaces
and meeting rooms, and have been valued separately on a depreciated replacement
cost basis.

20. The
income approach reflects what a potential buyer would expect to pay for a
similar building based on the level of rental income that would be expected to
be earned. The improvement value in the income approach is calculated based on
the total fair value less land value. It is important to note, that the
valuation methodology does not factor in:

· the heritage nature
of the building;

· additional costs associated
with refitting a heritage building compared to a new build;

· additional features
added to the building (example: ground heating source); and

· Additional
strengthening to 100% level of the building code.

21. Whilst
the latter have benefits in terms of lower operating costs and safety,
valuation is based on prevailing, comparable market rates.

22. UPL – similar to land, residential building assets were also
revalued as at 30 June 2017 and resulted in a revaluation uplift of $3.4M
recognised by UPL in 2017/18. The revaluation movement in the earlier
table only reflects the market movement from 30 June 2017 to 31 December 2017.

23. SML
– As already noted, these assets were revalued for the first time since
November 2003. The revaluation of the buildings reflects a “Capitalised
Income” valuation. This reflects what a potential buyer would expect to
pay for a similar building based on the level of rental income that would be
expected to be earned. As this is the first valuation and resulted in a decreased,
this amount will be an expense in the Surplus/Deficit of the company.

24. CFT
– all assets are considered to be specialised assets with no active
market and therefore the valuation is based on replacement cost of the asset
less an allowance for depreciation (based on age). The revaluation uplift
mainly reflects increase cost of materials to replace the asset.

Note 4 – Art Collection

25. The
collection is made up of artworks held at the Dowse Museum and Settlers
Museums, along with public sculptures located around the city.

26. The
valuation considers market based evidence (recent sales trends and auctions)
and comparisons to similar artworks held in other institutions in Australasia.

27. During
the previous three yearly revaluation in December 2014, questions were raised
concerning the ownership of “Pataka Nuku Tewhatewha”. It was
unclear at that time and was assumed to have been owned by Council, and
resulted in a value of $4.5M being added to the Art Collection.

28. The 31
December 2017 revaluation includes a reduction of $4.5M from the revaluation
reserve, which would represent a “correction” if it is confirmed
that actual ownership resides with local iwi and their descendants. At the time
of writing this report, this is currently insured by the Council and Officers
are seeking confirmation of ownership as well as any obligations and/or
expectations from/of Council in relation to “Pataka Nuku
Tewhatewha”. Officers will provide an update at the committee
meeting.

Financial
Impacts

Depreciation

29. The
following table sets out the annual depreciation per asset category for both
the pre and post 31 December 2017 asset revaluation.

30. The
Group’s 2018/19 and beyond total annual depreciation has been reduced by
$567,428 (HCC only: reduced by $745,317). This is mainly due to the impacts of
a revaluation which includes a re-assessment of the carrying amount of the
assets and the remaining useful lives of those assets. Typically, depreciation
will reduce when either the asset value(s) are reduced and/or the remaining
useful lives of the assets are increased.

Annual depreciation charge
pre-revaluation

$ vs %

Annual depreciation change
post-revaluation

$ vs %

Movement

$ vs %

Hutt City Council

Art Collection

Land

Buildings/Site Improvements

Waste Water

Storm Water

Water Supply

Roading

Seawall

Breakwater

N/A

N/A

5,750,123

8,997,932

3,103,082

3,844,884

12,653,549

112,719

75,013

5.0

3.7

1.7

3.2

2.8

2.2

1.5

N/A

N/A

4,871,228

8,780,559

4,205,202

3,919,808

11,827,474

112,719

74,995

4.5

3.7

2.3

3.4

2.8

2.2

1.5

N/A

N/A

-878,895

-217,373

1,102,120

74,924

-826,075

0

-18

-15.3

-2.4

35.5

1.9

-6.5

0.0

0.0

Total HCC

34,537,302

33,791,985

-745,317

Urban Plus Limited

Land

Buildings/Site Improvements

N/A

581,257

4.4

N/A

637,999

4.6

N/A

56,742

9.8

Seaview Marina Limited

Land

Buildings/Site Improvements

N/A

104,665

2.7

N/A

78,718

2.4

N/A

-25,947

-24.8

Hutt City Community Facilities Trust

Buildings/Site Improvements

559,275

1.9

706,369

2.4

147,094

26.3

Total

35,782,499

35,215,071

-567,428

-1.6

Revaluation Reserves

31. The following
table sets out the impact of the revaluation on the financial statements. The
net accumulation of asset uplifts or decreases (by asset class) passes directly
to the revaluation reserve of each entity, provided the revaluation reserve for
each asset class has a sufficient equity balance.

32. As noted above,
Seaview Marina Limited buildings have not been revalued in the past.
Accordingly, the revaluation reserve has no equity balance and the revaluation
decrease is expensed to the Statement of Comprehensive Revenue and Expense
immediately.

Revaluation
Reserve (Equity)

Opening
balance

Revaluation
movement

Closing
balance

Hutt City Council

Land – Operational/Site Improvements

Land - Infrastructure

Land - Restricted

Buildings

Waste Water

Storm Water

Water Supply

Roading

Other – Art, Seawall, Breakwater

11,326,349

71,736,184

52,809,612

15,768,219

78,792,087

85,455,344

42,161,227

150,848,602

11,561,363

4,234,958

988,700

14,200,344

5,105,883

19,991,435

14,229,100

6,250,044

11,046,876

-3,439,529

15,561,308

72,724,884

67,009,955

20,874,102

98,783,522

99,684,444

48,411,272

161,895,478

8,121,835

520,458,987

72,607,811

593,066,800

Urban Plus Limited

Land

Building/Site Improvements

6,969,904

4,489,563

185,000

1,105,431

7,154,904

5,594,994

Seaview Marina Limited

Land

Building

0

0

2,352,842

0

2,352,842

0

Hutt City Community Facilities Trust

Building

0

1,343,916

1,343,916

Total movement in revaluation reserves

531,918,454

77,595,000

609,513,456

Charged
to Surplus/Deficit

Seaview Marina Limited

Impairment on revaluation of assets

0

-41,421

-41,421

531,918,454

77,553,579

609,472,035

Consultation

33. There are no
consultation requirements arising from this report.

Legal
Considerations

34. There are no
legal considerations arising from this report.

Financial
Considerations

35. There are no
financial considerations in addition to those already outlined in this report.

Other
Considerations

36. In making
this recommendation, officers have given careful consideration to the purpose
of local government in section 10 of the Local Government Act 2002. Officers
believe that this recommendation falls within the purpose of the local
government in that it ensures council’s assets are recognized at fair
value and are not materially misstated.

Update on
the Rates Collection Agreement with Greater Wellington Regional Council

Purpose
of Report

1. To
provide the Committee with an update of the review of the existing rates
collection agreement between Greater Wellington Regional Council (GWRC) and
Council.

Recommendations

That the Committee notes the
report.

Background

2. Council
invoices and collects Greater Wellington Regional Council (GWRC) rates on all
Hutt City rating units on behalf of GWRC. The current rates collection
agreement has been in place since August 2014, and remains in force until 30
June 2018.

3. The
agreement is between GWRC and each of the Councils in the Wellington Region.
There is a separate agreement with each Council but the terms and conditions
are identical.

4. Over
the last year, GWRC have engaged Simpson Grierson (SG) to review the wording of
the agreement due to the recent court case challenging the legality of a local
authority - Kaipara District Council (KDC) - collecting rates on behalf of a
regional authority - Northland Regional Council (NRC).

5. The
2016 interim judgement by the High Court on the rating practices of NRC and KDC
found that the claim succeeded on three matters:

a. NRC not specifying payment dates;

b. NRC delegating the assessment of rates and
recovery of unpaid rates to KDC; and

c. NRC
delegating the authority to impose penalties on unpaid rates.

6. Specifying
payment dates: The High Court found that NRC rates resolutions were not
made lawfully, because they did not specify the dates that the NRC’s
rates were due for payment.

7. Delegating
the assessment of rates or recovery of unpaid rates – The High Court
found that KDC cannot assess and recover unpaid rates on NRC’s behalf.
For clarity regarding recovery of rates, the High Court found that KDC could
collect NRC’s rates but could not sue a ratepayer in its own name to recover
unpaid NRC rates.

8. Imposing
penalties on another Council’s unpaid rates – The High Court
found that there is no power in the Local Government (Rating) Act 2002 for a
local authority to delegate the power to impose penalties on its unpaid rates.
NRC’s penalty resolutions that delegated authority to the three
territorial authorities in its region to assess and recover penalties on its
rates were unlawful.

Discussion

9. In
the context of setting rates, local authorities are responsible for ensuring
that they comply with all aspects of the Local Government (Rating) Act 2002
when they set, assess, invoice and collect rates.

10. SG completed
their initial review, pending the court of appeal ruling, of the GWRC rates
collection agreements with the Wellington Region Councils’. SG
confirmed that the Wellington regions’ rating practices did not include
any of the issues identified between KDC and NRC. However, SG did recommend
some minor changes (wording tidy-ups), to the agreement.

11. In 2018, the
Court of Appeal disagreed with the High Court that Regional Councils must
themselves assess rates and undertake rates recovery. For assessment, the Court
of Appeal viewed this as a “mechanical exercise” and determined
that Regional Councils could contract this out to territorial
authorities. For recovery of rates, the Court of Appeal determined that
territorial authorities must simply include regional authorities as a party
thereto.

12. The Court of
Appeal did however agree with the High Court regards detailing rates payment
due dates and delegating the authority to impose penalties on unpaid rates.

13. At the same
time, GWRC have also proposed the following change to the timing of the payment
to GWRC from rates collected on their behalf by Council:

a. GWRC rates collected on rates instalment
date must be paid within seven working days following the instalment date.

14. Officers
support payment of rates to GWRC within seven working days of the end of the
month but do not support an additional payment within seven working days of the
rates installment due date. This is mainly because Council has six rates
installment due dates per annum and staff and system related costs to make
these additional six payments is both onerous and is not being subsidised by
GWRC.

15. At the time
of writing this report, SG is now completing their final review of the
agreement in light of these rulings. Once again, only minor changes are
expected.

16. Officers are
expecting the revised agreement to be issued to each Council in the next month
or so for consideration and approval.

Consultation

17. There are no
consultation requirements as a result of this report.

Legal
Considerations

18. There are no
legal considerations in addition to those already covered within this report.

Financial Considerations

19. The current
agreement is working well and is financially beneficial to the collecting
Councils and GWRC. Under the current agreement, rates collection fees per
rating unit have increased by $0.20 per rating unit per annum.

20. Each
collecting Council currently receives $10.40 per rating unit. Council has
budgeted to receive $406,000 for this service in 2017/18. The collection
arrangements are beneficial to GWRC in that they are able to collect rates more
efficiently than their previous in-house operating model.

21. The 2018/19
collection fee payable is still to be determined by GWRC, including the annual
collection fee increase and term of the new collection agreement. Council
Officers expect the term to be no less than three years.

22. Prudently,
Council Officers have assumed the GWRC collection fee will remain at $10.40 per
rating unit when setting the draft 2018-28 Long Term Plan budgets.

Other Considerations

23. In making this recommendation,
officers have given careful consideration to the purpose of local government in
section 10 of the Local Government Act 2002. Officers believe that this
recommendation falls within the purpose of the local government in that it
ensures value for money for the ratepayer.

1. To seek the Committee’s approval in principle for The Mayor to
lead an education delegation to Lower Hutt’s Sister Cities of Minoh,
Japan and Taizhou, China in October 2018, to further strengthen relationships,
establish new educational programmes and celebrate the 10th
Anniversary of the Hutt-Taizhou Sister City relationship.

Recommendations

That the Committee:

(i) notes that in May 2018 Minoh City’s
Mayor Kurata will lead a delegation of five officials and a Council officer
to Lower Hutt to attend the Sister Cities New Zealand Conference and that a
group of Minoh citizens will join the official delegation in Lower Hutt;

(ii) notes that representatives from Sacred
Heart College and Wainuiomata High School will be in Minoh the first week of
October 2018;

(iii) notes that the two Lower Hutt teachers on
Council’s ‘Hutt-Minoh Teacher Exchange’ programme, will be
in Minoh the first two weeks of October 2018;

(iv) notes that Assumption Kokusai High School in Minoh
is developing an International English Course Programme to bring a group of
Students to Lower Hutt for one term in 2019, and again in 2020;

(v) notes that in May 2018 Taizhou will bring a
delegation of five senior officials to Lower Hutt to attend the Sister Cities
New Zealand Conference; and that October 2018 marks a significant milestone
in the Sister City relationship between Taizhou and Lower Hutt being the 10th
Anniversary;

(vi) approves Mayor Ray Wallace and Mayoress, Linda
Goss-Wallace leading an education delegation to Minoh and Taizhou between 2
and 12 October 2018, at an estimated cost of up to $12,000;

(vii) approves an amount of funding capped at $6,000 to be
split equally among any Councilors who wish to accompany the Mayor as part of
the official delegation to Minoh and Taizhou; and

(viii) notes that the costs totaling up to $18,000 above
will be met from existing budgets.

For the
reason(s)

To strengthen
the long standing Sister City Relationship with Minoh City; and

To
acknowledge and celebrate the 10th Anniversary of the Sister City
relationship with Taizhou; and

Support and
focus on our existing sister city relationships as outlined in Council’s
international relationships work programme 2017-2019.

Background

2. Minoh
City and Lower Hutt have had a 24 year Sister City relationship and over the
most recent years the following activities have increased and strengthened this
longstanding relationship:

· Mayor Tetsuro Kurata visited Lower Hutt in
January 2012 with a group of 15 officials and citizens – discussions took
place on how to connect our young people, to increase their international
understanding and global connectivity.

· Several current education programmes
between schools and libraries in our cities enable citizens to develop their
global internationalisation, understanding and experiences; including

o The school to school Skype programme
established in 2013 between Tui Glen School, Epuni Primary School and two Minoh
schools;

o Hosting four Minoh teachers in August 2013
from the two Minoh schools in the Skype programme;

o Citizens in Minoh and Lower Hutt connect
monthly on Skype in our War Memorial Library, enhancing the people-to-people
relationships between our cities;

o Tui Glen School takes a small group of
students, parents and teachers to Minoh every two years to experience the
culture and education. The students are intermediate age, and are home
hosted, and attend school during their stay in Minoh;

· In January 2015 Mayor Tetsuro Kurata
returned to Lower Hutt with a group of 21 officials and citizens to celebrate
the 20th anniversary of the Sister City relationship. A
formal/public festival named “Tomodachi Day” (meaning ‘Day
of Friends’) was held in the Civic Gardens and Little Theatre to
celebrate their visit with more than 300 locals attending;

· Mayor Wallace led a delegation visit to
Minoh in October 2015 – that focused on Education and Art; formalising
the “Hutt-Minoh Teacher Exchange”, visiting the schools involved in
the Skype programme with Epuni and Tui Glen Schools, connecting Hutt Art
Society with Minoh Art Association and connecting Hutt Valley Rotary Club with
Minoh Rotary Club;

· In August 2016, five young university
graduates from Lower Hutt were assigned to Minoh for one year as ALT (Assistant
Language Teachers) as part of the Japanese Government’s JET (Japanese
English Teaching) programme. Four of them have extended their contracts
and are still living in Minoh, teaching English;

· In October 2016 the Hutt Minoh Teacher
Exchange programme commenced with two Lower Hutt teachers going to Minoh for
two weeks and in August 2017 Minoh sent two teachers to Lower Hutt as the
reciprocal exchange;

· Hutt Art Society sent more than 20 pieces
of Art to Minoh in 2016 for exhibition for two weeks and in May 2017 Hutt Art
exhibited 35 pieces from Minoh Art Association. A delegation of artists
from Minoh came for the official opening of the Exhibition in Lower Hutt;

· In May 2018 Minoh Mayor Kurata will lead a
delegation of Council Officials to Lower Hutt to attend the Sister Cities New
Zealand Conference and a group of Minoh citizens will join the official
delegation in Lower Hutt;

· In June 2018 The Wellington Region Karate
Association based in Wainuiomata will take a group of 24 members to Minoh to
train with the Minoh Karate Association as part of their trip through Japan;

· We have just selected the next two Lower
Hutt teachers on the Hutt-Minoh Teacher Exchange who will travel to Minoh on 29th
September 2018 for two weeks of teaching, learning and sharing culture,
education and language;

· In the first week of October 2018 the
International Director of Sacred Heart College will be in Minoh to discuss
arrangements with Assumption Kokusai High School; and

· In the first week of October 2018
Wainuiomata High School’s International Director, Teachers and students
in the Kapa Haka Roopu will be in Minoh performing at various events.

Taizhou and
Lower Hutt signed a Sister City Agreement on 30 October 2008. Over the
last ten years there have been a number of inbound visits to Lower Hutt, such
as:

· November 2015 a delegation interested in
Technology and Construction visited The Lightening Lab and Walter Nash Centre;

· April 2016 a delegation interested in
medical research visited Callaghan Innovation, connecting with the China Medical
City situated in Taizhou;

· Jiangsu Province of which Taizhou is a
city, sent members of their Commerce Department to Lower Hutt in November
2016. Hutt City Council officers’ presentations covered Urban
Development and Environmental Sustainability;

· In April 2018 the Sister Cities NZ –
Youth Committee’s “China Youth Tour” group will visit Taizhou
for one day. There are eight students and two youth leaders in the group,
of which four reside in Lower Hutt; and

· In May 2018 Taizhou will bring a delegation
of five senior officials to Lower Hutt to attend the Sister Cities New Zealand
Conference and discuss virtual connection programmes between our schools.

Discussion

3. The first week of October 2018, will see many visitors from Lower
Hutt in Minoh including:

a. The International Director of Sacred Heart College;

b. The International Director, Teachers and Students in
the Kapa Haka Roopu from Wainuiomata High School; and

c. The two Hutt-Minoh Teacher Exchange delegates.

4. The Wainuiomata High School Kapa Haka Roopu will perform at a
ceremony in Maple Hall where the Maori Po gifted from Lower Hutt to Minoh in
1999 stands, to represent the Hutt-Minoh Sister City relationship.

5. Mayor Kurata has invited Mayor Wallace to bring a delegation to
Minoh in October 2018 to strengthen the educational and art exchange programmes
and develop further opportunities between our two cities.

6. 30 October 2018 marks the 10th Anniversary of the Sister
City relationship of Lower Hutt and Taizhou:

a. While there have been invitations to visit, there has
been no outbound Lower Hutt Mayoral delegations to Taizhou since 2008;

b. Mayor Wallace has been invited to bring a delegation
to Taizhou in October 2018 to celebrate the 10th Anniversary; and

c. It is appropriate that a Mayoral led delegation visits
Taizhou to mark this significant anniversary to further strengthen the
relationship and investigate further educational and business-to-business
opportunities.

7. Taizhou has made real advancements in Medical Research and
Development in recent years with the ‘China Medical City’ the first
and largest medical hi-tech
zone in China that is located in Taizhou. Opportunities may exist for
connecting businesses in the region to the China Medical City.

8. Taizhou Foreign Affairs office is currently working with us to
establish a school to school Virtual Connection Programme between Konini
Primary and Wainuiomata High School with two Taizhou schools.

9. The International Director from Wainuiomata High School will be in
Minoh the first week of October and is keen to visit Taizhou the following week
with the Mayoral delegation, to have a face-to-face visit with the school
selected to connect with Wainuiomata High School in the school to school
Virtual Connection Programme.

10. Making connections with Mayor led visits to schools will provide
further opportunities to promote Lower Hutt as a place to study for international
students.

11. Council can enable and help facilitate further education activity
between our Sister Cities that will provide opportunities for students,
teachers and citizens.

12. Goals:

The Mayoral led delegation visit will
enhance and deepen the city’s relationships with Minoh and Taizhou and
assist in developing new and strengthening current activities between our
cities. This includes the following:

· Formalise a school to school Virtual
Connection Programme between two Lower Hutt and two Taizhou schools;

· Discuss other potential education, art and
cultural exchanges;

· Visit the China Medical City to establish
potential connections for Hutt and regional businesses; and

· Explore further economic/business opportunities.

13. Other areas of interest for our city includes:

· Promoting Lower Hutt as a tourist
destination to both the Japanese and Chinese markets;

· Opportunities to establish an Art/Cultural
exchange with Taizhou; and

· Open the doors for potential business
exchange.

14. Value for local organisations

Mayor
Wallace will formally invite members of The Hutt Valley Chamber of Commerce,
Hutt Art Society and local Lion’s and Rotary Clubs to join the
delegation.

Options

15. Council has the option to either;

a. further enhance the sister city relationships with Minoh and Taizhou and
support the educational programmes and exchanges of art, students and teachers.

or;

b. decline the invitations to visit to Minoh and Taizhou which would limit
effective engagement and not support the desire to encourage and grow links
between our cities.

Consultation

16. The International Relations and Project Manager has had regular
contact and discussion with members of the Lower Hutt school community and
Senior Lion’s and Hutt Art Society Representatives who are all supportive
of the proposed delegation visit.

17. Invitations from Minoh and Taizhou have expressed a strong desire
for an inbound Mayoral led delegation to each city this year.

Legal
Considerations

18. There are no
legal considerations.

Financial
Considerations

19. The official
delegation estimated costs of $18,000 can be met from within existing budgets
for FY2018/19.

Other
Considerations

20. In making
this recommendation, officers have given careful consideration to the purpose
of local government in section 10 of the Local Government Act 2002. Officers
believe that this recommendation falls within the purpose of the local
government in that it will encourage cultural and economic development,
strengthen our community’s culture and provide an opportunity not
otherwise available to communities. It does this in a way that is
cost-effective leveraging of existing relationships and connections with our
sister cities.

1. The
purpose of this report is to present the Council’s year to date financial
performance for the nine month period ended 31 March 2018 as well as the
forecast for the year ended 30 June 2018.

Recommendations

That the Committee notes
Council’s March 2018 year to date financial performance and the full
year forecast for the year ending 30 June 2018.

Financial Performance Summary

2. Council’s March 2018 year-to-date performance as well as a
full-year forecast to 30 June 2018 is attached as Appendix 1 to the
report. A high level summary is provided below.

3. A list of operating and
capital works projects is attached as Appendix 2 to the report. A high
level summary is provided below.

4. Council’s
treasury compliance report as at 31 March 2018 is attached as Appendix 3 to the
report.

Net Operating Result – March Year to Date

5. Excluding CFT grants,
capital subsidies, depreciation and unrealised gains and losses, Council is
$2.19M favourable to budget as at 31 March 2018. This is due to
additional revenue of $1.03M mainly from additional reserve contributions,
consents fees, metered water charges and landfill fees. Additionally, operating
expenditure is $1.20M less than planned mainly due to timing of some operating
costs and savings in interest expense.

6. Including CFT grants,
capital subsidies and depreciation, Council is $2.95M unfavorable to budget.
This is mainly due to lower capital subsidies than planned due to the cycleway
project delays. Additionally, depreciation is significantly higher than planned
due to a budgeting error.

7. Year to date,
depreciation is $2.08M unfavourable to budget. A new budgeting system
(Technology One Enterprise Budgeting) was used for the first time to calculate
depreciation in 2017/18. The budget was erroneously set too low as it has
recently been determined that the system was calculating depreciation using the
same depreciation rate for all asset classes. The actual depreciation costs for
2017/18 use varying depreciation rates depending on the asset class.

Net Operating Result – Full Year Forecast

8. Excluding CFT grants,
capital subsidies, depreciation and unrealised gains and losses, Council is
currently expected to finish the financial year $1.18M favourable to
budget. As noted above, this is mainly due to estimated additional
revenue of $2.21M from reserve contributions, consents fees, metered water
charges and landfill fees. However, this is offset by operating expenditure
estimated to be of $1.03M over budget mainly due to additional employee costs,
operating software license costs, capital project costs now being correctly
expensed and additional costs being incurred for water supply and solid waste.

9. Including CFT grants, capital subsidies and depreciation, Council is
expected to finish the financial year $6.26M unfavourable to budget. As noted
above, this is mainly due to lower capital subsidies and higher depreciation
than planned. Additionally, this is also due to a delayed grant payment of
$1.4M to the Community Facilities Trust (CFT) for the Stokes Valley Community
Hub. $1.7M was budgeted in 2016/17 and a $2M underspend was achieved last year.

Gains/Losses
on Revaluation of Financial Instruments and Property Revaluations

10. Council has a number of interest rate swap agreements in place to
comply with its treasury management policy and to provide some certainty with
future interest costs.

11. Due to fluctuations in the interest rate market, the overall value
of these agreements is constantly changing. Year to date, there has been
a $2.12M unrealised loss in the revaluation of Council’s total interest
rate swaps as interest rates have fallen. Council has no intention to realise
any interest rate swaps and this revaluation is a non-cash item.

12. The revaluation of Council’s infrastructure assets, land and
buildings and parks and reserves for the three years ended 31 December 2017 has
now been completed. In summary, the total revaluation increase to
Council’s assets was $72.61M against an expected uplift of $72.31M. For
more detailed information, please refer to the 2 May 2018 Finance and
Performance Committee report “HCC Group Asset Revaluation as at 31
December 2017”.

Capital Expenditure – March Year to Date

13. Excluding external subsidies, Council is $23.74M favourable to
budget. This is mainly due to delays in a number of projects including
$4M for the Events Centre, $7M for the Strategic Property Purchases, $3.6M for
the cycleway projects, $2.2M for the Integrated Community Services projects,
$2.8M relates to Parks and Reserves projects, and the balance is spread across
a number of other activities.

Capital Expenditure – Full Year Forecast

14. Excluding external subsidies, Council is currently expecting to
carry-over $11.88M of the 2017/18 capital works to 2018/19. This is
mainly due to delays on the cycleway projects, strategic property purchases and
the Making Places projects.

Asset Sales

15. Asset sales are forecast to be $7.1M under budget mainly due to
delays in the sale of Mitchell Park and strategic properties, as well as the
likely option to lease rather than sell the seawall/breakwater to Seaview
Marina Limited (SML).

Net Debt

16. Net Debt is currently forecast to be $168.08M at year end.
This is $8.43M more than planned mainly due to estimated operating cost
overspends, delays in asset sales and a potential change in direction regards
sale of the seawall to SML as noted above.

Annual Leave Liability

17. Annual leave liability at the end of March is slightly higher than
March last year. Over the past two years the overall liability has shown a slight
downward trend as reflected in the chart below.

Treasury Compliance

18. All limits within the Treasury Risk Management
Policy have been fully complied with including debt limits.

Consultation

19. There are no
consultation requirements arising from this report.

Legal
Considerations

20. There are no
legal considerations arising from this report.

Financial
Considerations

21. There are no
financial considerations in addition to those already noted in this report.

Other
Considerations

22. In making this
recommendation, officers have given careful consideration to the purpose of
local government in section 10 of the Local Government Act 2002. Officers
believe that this recommendation falls within the purpose of the local
government in that it provides Councilors with the necessary information to
effectively undertake their governance role.